Speculators Under Every Rock
And now the rest of the story.
Institutional investors drove oil prices to all-time highs this summer, and the same players are also responsible for much of the $44-per-barrel loss since then, according to a Sept. 10 report that is being used to bolster calls for greater trading regulation.
The report from a hedge fund investor who has grown prominent in the oil speculation debate, Michael Masters, comes as crude oil has staged a 28% retreat in the past two months. But Masters and backers of his report—including many congressional Democrats—say prices could return to previous highs if reform legislation isn’t passed. “Americans won’t stand for being held up at the pump by these Wall Street scoundrels every time they fill up their gas tank,” Senator Maria Cantwell (D-Wash.) said on Sept. 10 at the report’s release. She was joined by Masters, Adam K. White of White Knight Research & Trading, Senator Byron Dorgan (D-N.D.), and Representative Bart Stupak (D-Mich.).
According to Masters’ report, an influx of “long-only” investors—large investors like pension funds and endowments that bet prices would rise—poured into the oil market in recent years. Their investments reached a peak on July 11, when oil prices hit an all-time high above $147 per barrel.
But many oil market experts and analysts disagree. While acknowledging that demand may be slowing, they argue that oil’s dramatic price decline is evidence that a speculative investment bubble is beginning to burst
Former CFTC regulator Michael Greenberger says that tougher policies and more oversight by the CFTC, initiated in May (BusinessWeek.com, 6/9/08), have caused investors to flee commodities markets. “The only constant variable in the oil market since the spring has been tougher CFTC measures and more oversight,” says Greenberger, a law professor at the University of Maryland and former head of the CFTC’s Trading & Markets Div. “If actual supply and demand were at work, [oil] prices would have spiked with Russia’s invasion of Georgia and the onset of hurricane season.”
